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Demonstrate what is the degree of operating leverage

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The Jonhaux Company produces a product that has a contribution per unit of $40. Fixed operating costs are $140,000. The Jonhaux Company currently has $10 million of bonds outstanding with a coupon rate of 5%.

Question a. What is the current break-even number of units for Jonhaux considering all fixed costs?

Question b. The board of Jonhaux is considering a proposal to issue $1 million additional bonds, with aa coupon rate of 6%. How would this proposed financing affect the break-even point?

Question c. If 20,000 units are produced and sold, what is the degree of operating leverage, the degree of financial leverage, and the degree of total leverage under the current and proposed financial structures?

Reference no: EM132658157

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